|
Our Consolidated Financial Statements include the accounts
of RPM International Inc. and its majority-owned subsidiaries.
Preparation of our financial statements requires the use of
estimates and assumptions that affect the reported amounts of
our assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during
the reporting period. We continually evaluate these estimates,
including those related to our asbestos liability; allowances for
doubtful accounts; inventories; allowances for recoverable
taxes; useful lives of property, plant and equipment; goodwill;
environmental and other contingent liabilities; income tax
valuation allowances; pension plans; and the fair value of
financial instruments. We base our estimates on historical
experience, our most recent facts, and other assumptions that
we believe to be reasonable under the circumstances. These
estimates form the basis for making judgments about the
carrying values of our assets and liabilities. Actual results,
which are shaped by actual market conditions, including legal
settlements, may differ materially from our estimates.
We have identified below the accounting policies and
estimates that are the most critical to our financial statements.
Revenues are recognized when realized or realizable, and
when earned. In general, this is when title and risk of loss pass
to the customer. Further, revenues are realizable when we
have persuasive evidence of a sales arrangement, the product
has been shipped or the services have been provided to the
customer, the sales price is fixed or determinable, and
collectibility is reasonably assured. We reduce our revenues for
estimated customer returns and allowances, certain rebates,
sales incentives and promotions in the same period the related
sales are recorded.
We also record revenues generated under long-term
construction-type contracts, mainly in connection with the
installation of specialized roofing and flooring systems, and
related services. In general, we account for long-term
construction-type contracts under the percentage-ofcompletion
method and, therefore, record contract revenues
and related costs as our contracts progress. This method
recognizes the economic results of contract performance on
a timelier basis than does the completed-contract method;
however, application of this method requires reasonably
dependable estimates of progress toward completion, as well
as other dependable estimates. When reasonably dependable
estimates cannot be made, or if other factors make estimates
doubtful, the completed-contract method is applied. Under
|
the completed-contract method, billings and costs are
accumulated on the balance sheet as the contract progresses,
but no revenue is recognized until the contract is complete or
substantially complete.
Our reporting currency is the U.S. dollar. However, the
functional currency of all of our foreign subsidiaries is their
local currency. We translate the amounts included in our
Consolidated Statements of Income from our foreign
subsidiaries into U.S. dollars at weighted average exchange
rates, which we believe are fairly representative of the actual
exchange rates on the dates of the transactions. Our foreign
subsidiaries’ assets and liabilities are translated into U.S. dollars
from local currency at the actual exchange rates as of the end
of each reporting date, and we record the resulting foreign
exchange translation adjustments in our Consolidated Balance
Sheets as a component of accumulated other comprehensive
income (loss). Translation adjustments will be included in net
earnings in the event of a sale or liquidation of any of our
underlying foreign investments, or in the event that we
distribute the accumulated earnings of consolidated foreign
subsidiaries. If we determined that the functional currency
of any of our foreign subsidiaries should be the U.S. dollar,
our financial statements would be affected. Should this occur,
we would adjust our reporting to appropriately account for
such change(s).
As appropriate, we use permanently invested intercompany
loans as a source of capital to reduce exposure to foreign
currency fluctuations at our foreign subsidiaries. These loans
are treated as analogous to equity for accounting purposes.
Therefore, foreign exchange gains or losses on these
intercompany loans are recorded in accumulated other
comprehensive income (loss). If we were to determine that the
functional currency of any of our subsidiaries should be the
U.S. dollar, we would no longer record foreign exchange gains
or losses on such intercompany loans.
We apply the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," which
addresses the initial recognition and measurement of goodwill
and intangible assets acquired in a business combination. We
also apply the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires that goodwill be tested on
an annual basis, or more frequently as impairment indicators
arise. We have elected to perform the required impairment
|
